Public Joint Stock Company Uralkali (MCX:URKA): A Look At Solid Capital Returns

This analysis is intended to introduce important early concepts to people who are starting to invest and looking to gauge the potential return on investment in Public Joint Stock Company Uralkali (MISX:URKA).

Uralkali stock represents an ownership share in the company. As a result, your investment is being put to work to fund operations and if you want to earn an attractive return on your investment, the business needs to be making an adequate amount of money from the funds you provide. You need to pay attention to this because your return on investment is linked to dividends and internal investments to improve the business, which can only occur if the company is expected to produce adequate earnings with the capital that has been provided. To understand Uralkali’s capital returns we will look at a useful metric called return on capital employed. This will tell us if the company is growing your capital and placing you in good stead to sell your shares at a profit.

See our latest analysis for Uralkali

Uralkali’s Return On Capital Employed

When you choose to invest in a company, there is an opportunity cost because that money could’ve been invested elsewhere. Accordingly, before you invest you need to assess the capital returns that the company has produced with reference to a certain benchmark to ensure that you are confident in the business’ ability to grow your investment at a level that grants an investment over other companies. To determine Uralkali’s capital return we will use ROCE, which tells us how much the company makes from the capital employed in their operations (for things like machinery, wages etc) I have calculated Uralkali’s ROCE for you below:

ROCE Calculation for URKA

Return on Capital Employed (ROCE) = Earnings Before Tax (EBT) ÷ (Capital Employed)

Capital Employed = (Total Assets – Current Liabilities)

∴ ROCE = US$1.21B ÷ (US$8.93B – US$2.70B) = 19.45%

As you can see, URKA added RUB19.4 for every RUB100 you invested over the previous twelve months. This shows Uralkali provides a favourable return to capital holders, which beats the 15% ROCE that is typically considered to be a strong benchmark. As a result, if URKA is clever with their reinvestments or dividend payments, investors can grow their capital at an attractive rate over time.

MISX:URKA Last Perf Apr 3rd 18
MISX:URKA Last Perf Apr 3rd 18

Before moving forward

URKA is efficient with the use of capital, but this is only the case if URKA continues to maintain the presently healthy ROCE, which will change if the company either earns less or requires more capital to keep growing earnings. So it is important for investors to understand what is going on under the hood and look at how these variables have been behaving. Three years ago, URKA’s ROCE was 7.48%, which means the company’s capital returns have improved. We can see that earnings have increased from US$812.53M to US$1.21B whilst capital employed has also decreased due to a fall in total assets and increase in current liabilities (more borrowed money) , which means the company has been able to improve ROCE by growing earnings and simultaneously putting less capital to work.

Next Steps

Uralkali’s ROCE has increased over the recent past and is currently at a level that makes the company an attractive candidate that is capable of compounding your capital at a fast rate. This is the ideal situation to be in, but return on capital employed is a static metric that should be looked at in conjunction with other fundamental indicators like the management team and valuation. Without considering these fundamentals, you cannot be sure if this trend will continue or reverse due to reasons that cannot be seen by looking in the past. If you’re building your portfolio and want to take a deeper look, I’ve added a few links below that will help you further evaluate URKA or other alternatives.

  • 1. Management:Have insiders been ramping up their shares to take advantage of the market’s sentiment for Uralkali’s future outlook? Check out our management and board analysis with insights on CEO compensation and governance factors.
  • 2. Valuation: What is URKA worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether URKA is currently mispriced by the market.
  • 3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.